Trade Liberalisation, Closer Economic Relations and Intra-Industry Specialisation

Abstract
Much of the growth in trade among the industrialised countries, and more recently among countries in the Asia-Pacific region, has taken the form of intra-industry trade (HT). Australia has historically had one of the lowest shares of IIT among OECD countries. This article examines how Australia's IIT has changed in the 1980s in response to the process of trade liberalisation and completion of the Closer Economic Relations (CER) pact with New Zealand. HT indexes are estimated for Australia's multilateral and trans-Tasman trade for 1981 and 1991 for 132 industries using data at the 3 and 4-digit level of the Standard International Trade Classification (SITC). The results point to a sharp increase in the share of IIT for both multilateral and trans-Tasman trade. Industries that have undergone the largest reductions in protection levels have increased their shares of IIT quite considerably. Increased intra-industry specialisation suggests that the short-run adjustment costs associated with trade liberalisation are likely to be lower. If IIT continues to grow in response to the ongoing process of internationalisation of the Australian economy, then Australia's prospects for expanding its share of world trade are good.     

Trade and Industry Policy

This article consists of a review of changes in trade and industry policy, along with discussions of the determinants of change and the major problem areas. Policy between 1965 and 1985 is summarised, and the growth of unemployment in the 1970s is suggested as a key determinant of change. Higher protection in certain industries, and moves to more quantitative methods ot protection can be related to unemployment, in Australia as in other countries. Theory and empirical evidence suggest that protection is likely to prove ineffective in reducing unemployment. The reliance on protection in particular cases is ascribed to a wish by governments to preserve specific jobs, not to increase overall employment. Policy can have a role in facilitating or restricting structural change which can arise from several sources, such as changing trade patterns and preferences. The devices of policy are considered briefly to determine whether they are likely to facilitate change or not. It is concluded that they often provide incentives to avoid change. The scale problem is considered, and it is suggested that the cost of protection could be high in industries subject to significant scale economies. Scale and adjustments are considered in the light of two industries, motor vehicles and whitegoods, and the role of industry plans is examined. The actuality of trade and industry policy often differs from announced intentions, and this ambiguity can give rise to uncertainty which itself has a cost.     

Trade barriers,multinational involvement and intra-industry trade: panel data evidence from India

The article analyses the effects of trade barriers and multinationals on the intensity of intra-industry trade (IIT) in a panel of Indian manufacturing industries from 1988 to 1999. We find that the intensity of IIT increases with the reduction of trade barriers. This is expected as greater competition from imports leads individual plants in the domestic industry to specialize in the manufacturing of unique varieties. The analysis suggests that horizontal (market seeking) multinational activities in the domestic industries exert a negative influence on IIT. This is consistent with the view that horizontal multinationals displace exports to the host country. At the same time, our results indicate that IIT will be stimulated to the extent that the entry of multinationals induces intra-industry specialization. We also analyse the role of product differentiation and plant level scale economies in determining IIT.     

Unfinished Business

Abstract This article is about three phases in Australian trade policy: protectionism, unilateral liberalisation, and participation in regional trade liberalisation. Australia used to have one of the most protected economies in the world. The last dozen years have seen a radical transformation of Australian economic policy: Australia is in the process of becoming one of the most open economies in the world. The last five-to-ten years have also seen a related transformation of Australian foreign economic policy. This policy is now centrally concerned with promoting the process of international economic integration within the Asian region; particularly through the APEC process. Should Australia be pursuing ‘open regionalism’ in the Pacific? or promoting an Asia Pacific trading bloc? or concentrating on its own unilateral trade liberalisation? or using its energy to press for global liberalisation through the GATT? I argue that there remains a deep contradiction in the APEC process; that ‘open regionalism’ is in Australia's interests, and that the critical test of Australia's conversion to liberalisation will come in this third phase, in the future answers that it gives to these questions.     

Intra-industry trade with multinational firms

Recent developments, including the analysis of firm-level adjustment to falling trade costs, have contributed to a revival of interest in intra-industry trade (IIT). Most empirical work still relies on the standard Grubel-Lloyd measure. This however refers only to international trade, disregarding income flows stimulated by repatriated profits of multinational firms. Given the overwhelming importance of the latter, this is a major shortcoming. This paper provides a guide to measurement and estimation of the determinants of bilateral IIT shares from the perspective of new trade theory with multinational firms. We develop an analytically solvable general equilibrium model to investigate the impact of investment costs, multinational activities and income flows from repatriated profits. We also discuss and quantify the bias of the Grubel-Lloyd index associated with repatriated profit flows of multinationals. Using bias-corrected versions of the Grubel-Lloyd index as the dependent variable, we demonstrate that the determinants motivated by our theoretical analysis offer important insights into variations in IIT shares.     

Horizontal and vertical intra-industry trade in Australian manufacturing: does trade liberalization have any impact?

This paper contributes to the literature on intra-industry trade (IIT) by disentangling such trade into horizontally and vertically differentiated products, and investigating their determinants in the context of trade liberalization in Australia. IIT in Australian manufacturing has increased following trade liberalization in 1980s and is increasingly dominated by vertically differentiated products. Industry level evidence confirms that the failure to segregate IIT into horizontally and vertically differentiated products produces misleading results as their determinants differ. Also, structural changes brought about by the policy liberalization appear to have an impact on total as well vertical IIT.     

Intra-tourism trade,income distribution and tourism endowment: an econometric investigation

Empirical investigation (Nowak et al., 2012) points out that vertical intra-industry trade (VIIT) in Europe is the dominant type of intra-industry trade (IIT) in the tourism sector. This article is the first in tourism literature to test separately the determinants of vertically and horizontally differentiated services, using the most recent models in the theory of IIT. We examine bilateral trade among all trading partners of the sample of European countries, covering the period from 2000 to 2008. We show that differences in gross domestic product per capita and the income-distribution overlap, as well as cultural proximity, are the most significant driving forces behind VIIT for European countries. Geographic distance has a negative effect, whereas specific tourism endowments and relative size of the economies are less conclusive. These results confirm theory predictions and most of the empirical findings related to the pattern of VIIT for the manufacturing sector. As expected, we find that determinants of VIIT cannot explain horizontal intra-industry trade in tourism. We suggest two alternative methods of estimation: generalized least squares logistic function and the fractional logit estimator. We conclude that there are common factors explaining IIT in the manufacturing and tourism trades.     

Dynamics of Intraindustry Trade and Labor-Market Adjustment

This paper investigates some dynamic aspects of the 'smooth adjustment hypothesis' that is commonly associated with intraindustry trade (IIT). The analysis is conducted on a panel of plant-level employment data and industry-level production and trade data for Ireland. Rates of intraindustry job turnover are used as a proxy for labor-market adjustment. Three findings stand out. First, a measure of marginal IIT is found to be more appropriate for the analysis of adjustment issues than the traditional static IIT index. Second, the effect of marginal IIT on labor-market adjustment is most significant in the short term, namely for indices calculated on one-year ntervals and lagged by one year. Third, the most significant determinants of the intraindustry job turnover rate are sector-level plant concentration ratios and trade openness.     

Trade liberalization and industrial structure in Spain: An applied general equilibrium analysis

We empirically evaluate the aggregate welfare effects and structural adjustment for the Spanish economy that would follow from trade liberalization with the European Economic Community. Recent theory suggests that the classical gains form more liberal trade relations could be amplified substantially if EEC liberalization permits Spanish industries to realize economies of scale. These effects depend upon the extent of trade creation and trade diversion resulting from preferential liberalization, which in turn depend on the existing patterns of Spanish resource allocation, trade, and comparative advantage. The estimated results are derived from disaggregated microeconomic model of the Spanish economy. We find that increasing returns can actually be beneficial or detrimental, depending upon the interactions between trade and policy toward domestic industry.     

Oman's trade and opportunities of integration with the Asian economies

This paper investigates the determinants of trade between Oman and its major Asian trading partners in order to gauge the impact of the process of trade liberalisation. The empirical findings based on the gravity model indicate that Oman's imports from Asia are strongly determined by Asian population, Asian per capita gross domestic product (GDP), real exchange rates, distance and Oman's per capita GDP. The results also provide strong evidence that Oman's oil exports to Asia are strongly and equally determined by Asia's and Oman's population. Our findings reveal that while distance is not a friction to Oman's oil exports, it has a weak regressive effect on non-oil exports. Our results also indicate a negative but statistically insignificant effect of trade liberalisation on non-oil exports. These findings certainly have policy implications in terms of Oman–Asia trade relationship and in particular the need for more policy intervention to liberalise the non-oil exports sector so as to facilitate its wider integration within Asia.     

Trade Policy in the Presence of Economies of Scale and Product Variety*

It is well known that laissez faire may not be the ‘first-best’ policy in a closed economy where economies of scale are present. Corden has shown that this conclusion can carry over into an open economy, though under his assumption that imported goods are perfect substitutes for home-produced goods, interference with international trade could not raise real income. We have shown that where there are economies of scale, and imported goods are not identical to the home produced goods, interference with trade could raise real national income, though such a form of intervention would not normally be optimal. Further, it could even be desirable to support home production of more than one ‘variety’. Measurements of ‘costs of protection’ that aggregate several varieties into one may mislead not only regarding the size of the cost but even regarding its sign.     

Labour Rents,Adjustment Costs and the Cost of US Steel Trade Restraints in the 1980s

Recent studies have compared labour gains from protection in import-competing industries with the costs of protection and found that those gains are not large enough to justify trade restraints. This study utilizes a new empirical technique for estimating the costs and benefits of protection in a partial equilibrium framework, and provides a complete and consistent accounting of labour benefits including both labour rents and adjustment costs saved. We find that a small steel tariff could have generated net welfare gains for the US in the 1980s, even though actual protection through Voluntary Restraint Agreements generated net welfare losses.     

产业内贸易的结构变动与决定因素——基于中国电子及通讯设备制造业的实证分析

对1996—2005年中国电子及通讯设备制造业产业内贸易的结构、变动及决定因素进行的实证分析显示：中国电子及通讯设备制造业贸易以产业内贸易为主,产业内贸易又以垂直产业内贸易为主,水平产业内贸易贡献不大;加入WTO前后两个阶段产业内贸易及其结构变动呈相反的趋势;要素禀赋结构及其变化是产业内贸易变动的主要因素,而外商直接投资、规模经济和产品差异三个因素的影响很微弱。这表明中国电子及通讯设备制造业扩张的基础是成本优势且主要集中于国际产业链的低端,加入WTO并没有真正改变中国电子及通讯设备制造业的国际分工地位。     

Credit constraints,inequality and the growth gains from trade

This paper tests the hypothesis that, in the presence of credit constraints, higher wealth inequality affects negatively the growth gains from trade liberalisation. Variations in the growth rate of value added–decomposed in the growth rate of the number of establishments and the growth rate in average size–of manufacturing industries in 34 developing countries before and after trade liberalisation are used to study the effects of inequality on the difference in growth under liberalised and nonliberalised regimes. The results show that the number of firms in industries with high dependence on external finance in countries with higher inequality grow significantly slower, in both statistical and economic terms, than in industries with low dependence on external finance in countries with lower inequality following a trade liberalisation relative to the closed-economy period.     

Protection and Liberalisation in Australia and Abroad

This article reviews changes in Australian protection policy between 1967 and 1995, particularly the political economy aspects. The story is quite complex, and until 1974 was unusual by international standards, with a sophisticated Australian tariff debate and the remarkable transparency role of the Industry Assistance Commission (IAC), and its predecessor, the Tariff Board. The role of Alf Rattigan, Chairman of the Tariff Board and later the IAC, is stressed. Liberalisation since 1988 has been drastic, so that most tariffs will be brought down to 5 per cent by the year 2000. All quotas were ended by 1993. This can be contrasted with very high protection levels in 1967 and quite high levels even in 1987. Substantial unilateral trade liberalisation normally requires exchange rate depreciation, and the floating of the Australian dollar made the tariff reductions possible. The motives for Australian trade liberalisation in the 1980s are compared with those for similar liberalisations in many developing countries.     

A natural experiment for identifying the impact of ‘natural’ trade barriers on exports

The paper investigates the relative importance of trade policy and ‘natural’ sources of export taxation in Malawi, a landlocked African economy. These sources of export taxation are in turn used to explore how export supply would respond to trade liberalisation as opposed to measures which lower other international trade costs. The findings indicate that trade policy barriers are now only a limited source of ‘true’ export taxation and that trade policy reform needs to be complemented with reforms to reduce international trade, including transport, costs.     

Modelling Labour Market Adjustment to Trade Liberalisation in an Industrialising Economy

This paper investigates labour market responses to trade liberalisation in an industrialising country. Short and long run responses of employment and wages are examined using a specific factor trade model, which underpins the empirical work. Employment and wage equations are estimated using dynamic panel techniques for importable and exportable sectors in Mauritius and for a period covering both the pre- and post-liberalisation regimes. The empirical testing finds some support for the theoretical predictions of differential responses between sectors. Incre ases in female participation, however, appear to have dampened the adjustment burdens of liberalisation on importables     

Politics of scale and strategic selectivity in the liberalisation of public services – the role of trade in services

One of the most contentious issues of the neoliberal agenda has been the privatisation of public services. The WTO GATS negotiations over the liberalisation of trade in services, which commenced in the year 2000, led to a strongly contested debate over whether the international level would provide an additional channel for the privatisation of public services. In particular, the position of the European Union was criticised for promoting this agenda. More recently, this question has regained its significance with the start of negotiations for the Trade in Services Agreement and the Transatlantic Trade and Investment Partnership. Thus, this article seeks to analyse the politics of scale in the field of trade in services and its specific impact upon the liberalisation of public services. By applying a Neo-Poulantzian IPE approach, we propose a typology of (i) scalar forms in trade policy and (ii) of particular liberalisation strategies. Our results suggest that the multilateral level is but one element in a strategic politics of scale, with the former primarily fulfilling the role of locking-in liberalisation gains achieved at other levels, while other scalar forms, in particular bi- and plurilateralism, are primarily used to progressively advance the liberalisation agenda.     

Intra-industry Trade and Innovation: An empirical study of the Colombian manufacturing industry

This paper analyses the theoretical and empirical relationship between intra-industry trade (IIT) flows in manufactures and technical change for the Colombian manufacturing industry during the 1970-95 period. A general estimating equation for the sources of change of the equilibrium number of varieties, in which TFP growth is one of its components, is derived from the basic model of trade in differentiated goods with monopolistic competition. Based on that relationship, several estimations on the determinants of IIT flows are carried out. The econometric set up follows a panel data and cross-section estimations of system of simultaneous equations. TFP and IIT indices are the endogenous variables of the system with industry characteristic, trade policy, and innovation-activity variables as the set of exogenous variables. The paper also presents a comparative analysis in the direction and trends of Colombia's IIT flows in manufactures with the Group of Seven, NAFTA, and the Latin American Free Trade area members (LAFTA) since 1974.     

Industry-specific determinants of vertical intra-industry trade: the case of EU new member states’ agri-food sector

The determinants of intra-industry agri-food trade are analysed to only a limited extent in the literature. This article investigates the industry-specific determinants of vertical intra-industry agri-food trade between new member states of the EU and the other EU countries for the period 1999–2010 by applying a dynamic panel data model. Results suggest that IIT is mainly low vertical in nature, suggesting regional export of low-quality products to EU markets. Results also show that vertical product differentiation and FDI are positively related to VIIT, suggesting that quality growth and investments foster vertical intra-industry trade. As to productivity and factor endowments a negative relationship with VIIT was found, implying the labour abundant and similar nature of NMS agricultural sectors.